Luck, bold moves led to budget surplus

March 13, 2013

By

Donna Kenny Kirwan

PAWTUCKET â€” The city administration's recent announcement that it ended fiscal year 2012 in the black is certainly good news, although a deeper look shows that this result came about because of some bold strategies as well as a little luck.
Last week, it was announced that an annual audit showed Pawtucket's municipal budget ended FY12 with a surplus of $2.7 million. A press release stated that the surplus was achieved by total revenues exceeding budgeted spending allocations, with positive revenues due to tight fiscal controls, tax receipts, interest on taxes and state aid.
Mayor Donald Grebien had stated, â€śThis is very good news that represents the hard work and sacrifice of a lot of dedicated people.â€ť He added that the tight fiscal controls had reversed a series of deficits and would allow the city to rebuild its reserves fund. Yet, as first reported on line at GoLocal Prov News, there is much more to the savings story, including the role that Mother Nature played last winter.
Largely because of combined deficits from the previous three years, particularly involving the schools, the city administration began FY12 with a bleak financial outlook. As such, city officials looked at trying to find savings from the fire department in some areas that they knew could run afoul of collective bargaining agreements. They told the union that beginning in June, they would no longer fund holiday pay, unilaterally increased medical co-pays from about 12 percent to 25 percent, and eliminated an engine company to reduce overtime costs.
Director of Administration Tony Pires said the firefighters' union was notified of these moves early on in 2012. He said the union leaders were essentially told by the city that â€śwe have no other place to turn,â€ť and while theses actions might be in violation of the collective bargaining agreement, â€śit was either that or a death sentence.â€ť
By â€śdeath sentence,â€ť Pires was referring to the city having its financial situation become so negative as to require a receivership scenario such as Central Falls, or the slightly less severe oversight of a state-appointed budget commission, as happened in Woonsocket and East Providence. â€śIt's like finding a person lying in the road,â€ť said Pires. â€śI'm not a medical person, but I will give them CPR until medical help arrives. We did what we felt was necessary to keep control without the state's management.â€ť
These actions to the fire department that were enacted for the last six months of FY12 generated a savings of $400,000. Yet, predictably, the firefighters' union filed grievances over the changes, and in the cases of the holiday pay and medical co-pay increases, the city now must pay that amount back. (A grievance over â€śminimum manningâ€ť requirements related to the removal of the engine company was ruled â€śunarbitrableâ€ť but the matter is being addressed in the current contract talks, according to union president Capt. Robert Neill).
Pires said that while this money now has to be restored (about $280,000 for the retroactive holiday pay and about $120,000 in retroactive medical co-pays), the mild winter of 2012 allowed the city to bank about $500,000 that had been budgeted for snow removal in last year's budget. While the moves represented a gamble of sorts, he noted, â€śWe did what we had to do to not go under.â€ť
Another big factor that impacted the city's FY12 budget was the school budget, which the administration knew to be at roughly $1.8 million early in FY12. â€śTheir deficit was not a surprise and we were monitoring it closely,â€ť said Pires. The city had agreed to provide the schools with about $718,000, but this still left about a $1 million projected deficit to deal with. This was what led to the decision to make changes in the firefighters' contract, he said.
However, Pires noted that by April 2012, â€śthat $1 million had grown to $1.8 million. It wound up at $2.3 million. We were trying to manage it but it was a moving target,â€ť he stated.
Pires said, however, that a lot of the school department's deficit had to do with its being self-insured for medical costs and those costs coming in much higher than what had been budgeted. â€śThat and monies taken from the school aid from the state,â€ť he added.
The schools ended up receiving additional state aid and are working with the city to pay down the FY12 debt, but the city will have to contribute more as well. In the end, the $2.7 million surplus, minus school funds and the payback to the firefighters, nets the city around $700,000, said Pires. Some further moves helped generate savings, such as leaving some department head positions vacant, changing to more energy efficient lighting and other measures. â€śWe ran it pretty tight and we're proud of that,â€ť he added.
Pires noted that while the surplus is obviously something the administration is pleased about, particularly since it provides an opportunity to bolster the city's nearly depleted â€śrainy dayâ€ť fund, he said it can also lead to a false impression. â€śWe've had some folks who we are negotiating with who think we're looking at a $2.7 million surplus. And it's really not, when you subtract what we have to pay to the schools and the firefighters,â€ť he noted.
When it comes to school funding, Pires credits Grebien with trying to approach things differently. He said that because the city had experienced a number of years where the schools incurred a large annual deficit, city officials had gotten into a routine of doing five-year deficit reduction plans to spread out the debt.
â€śBut, if you do that for multiple years, you're outlaying a million or a million and a half right off the topâ€ť (of the next fiscal year) noted Pires. â€śThat's not the way to manage. We must work with the schools and keep our eye on our own budget as well so we can cover the expenses without starting a whole new cycle of five-year deficit reduction plans,â€ť he said.
Pires said the collaborative approach with the schools forged by Grebien has been very successful, and noted that in fiscal 2011, the schools worked hard and showed no new deficit for the first time in years. Now, he said the two sides are working to see if they can avoid a deficit again in the current fiscal year. He said it appears there is money this year, but conceded that it will likely â€śbe close.â€ť
When it comes to city operations, Pires noted that â€śluck is important, but so is staying on top of it--every single day.â€ť